Strained logic on full-fee university places

The Mercedes-Benz CLK 63 AMG is an impressive car, but at $200,000 it is rather out of my price range. But am I excluded from car ownership as a result? If you apply the logic of the National Union of Students, the answer to that question is yes. In response to the annual media kerfuffle over $100,000 and $200,000 university courses reported in each year’s Good Universities Guide, NUS issued a media release:

The National Union of Students called on the government to review its position on full fee paying places in order to provide opportunities to all students, regardless of whether they have wealthy families or are prepared to take up a $200,000 loan. National President, Mr Michael Nguyen said, “The prospect of going to university and graduating with a huge debt really makes it difficult for young people to be able to go to university unless they come from wealthy families.”

Of course, very few of the 663,000 Australians enrolled in Commonwealth-connnected higher education institutions last year were paying $200,000 or anything like it. Many of the most expensive courses are in fact double degrees which in practice cost less than the figure reported in the Good Universities Guide. When I have looked into this in the past the GUG assumes that people pay full-fees for both courses. However, as the full-fee ENTER for the more prestigious course is usually above the HECS ENTER for the less prestigious course, any students would pay full fees for one and HECS for the other. I haven’t had time to do more than quick check of this year’s GUG, but for Monash at least the same problem is there. Monash’s website states for Arts/Law:

This course is also available as a concurrent degree, where students can be enrolled in a full-fee paying place in Law, and a Commonwealth supported place in Arts.

According to the 2007 cut-offs published in The Age earlier this year, a full-fee Law degree had an ENTER of 94.5, while a HECS Arts degree had an ENTER of 86. So anyone qualifying for full-fee Law easily qualifies for a HECS place in Arts.

Also, people enrol in full-fee courses and then switch across to HECS places. According to an answer given in Parliament last year, 764 full-fee students in 2005 switched to a HECS place at the same institution (that includes the same course and other courses; it does not include people moving between universities).

We don’t have the 2006 data on fee-paying status yet, but in 2005 only 3% of Australian undergraduates were in full-fee courses at any price level. So the other 97% were in price-controlled, government-subsidised places. Contrary to NUS logic, having expensive courses on the market does not reduce the availability of cheap courses, any more than a $200,000 Mercedes puts a Toyota Corolla out of reach.

NUS isn’t the only organisation straining logic on full-fee courses. Labor is pledged to abolish them, so their position seems to be that though some individuals are able and willing to pay the full cost of their education – nearly two-thirds paid up-front in 2005, despite FEE-HELP loans being available – they should nevertheless be required to take a subsidy. Compulsory handouts to the rich!

That said, the full-fee places are a symptom of serious policy problems in higher education. The quota system of allocating HECS places by discipline to universities means that the supply of places is out of alignment with demand for places. Full-fee places, for which supply is controlled by the universities rather than the government, help alleviate this problem, albeit at considerable expense to the students involved. Universities like the full-fee places because the income for the fixed subsidy and price-controlled HECS places is out of alignment with costs, and so revenue from full-fee students is necessary to make up the shortfall.

A market system would let supply rise to demand and prices rise to costs. There may still be different prices for different students, but this is likely to reflect discounting for equity students or marketing strategies, rather than the huge price differences flowing from often trivial differences in Year 12 results that the current system produces.

9 thoughts on “Strained logic on full-fee university places

  1. Cars, whether Mercedes’ or Toyotas, were never freely offered to citizens as a right – as tertiary education once was – so it’s not a very good comparison.

    You make a good case to show that the system is seriously flawed, but supplying places according to demand could still be done freely, couldn’t it?

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  2. This post is below your usual standard, Andrew. If you do a double degree you’ll still have a massive debt whether the debt is a partly HECS or not – which is the point Nguyen was making.

    Let’s be clear – this argument is not about how selective uni education should be. It’s about whether the basis of selection should be capacity to pay or something else.

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  3. DD: I don’t see the argument in terms of capacity to pay — the number of degrees that you can’t get the government to pay 100% of the upfront fees for is almost zero (even less if you subtract Bond University). Its not the capacity to pay, its the willingness to take on large debts. Given that someone has to pay, and the government and taxpayers evidentally don’t want to, what fairer system are you suggesting?

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  4. Nobody is forced to do double degrees though, so the people who do them must value them at least as highly as the fees they’re paying DD.
    And I don’t see why people with the capacity to pay who want to should be prevented as long as people from low SES backgrounds with acceptable academic grades can still access HECS places. As long as we’re not selecting AGAINST low income people, I just don’t see why this is an issue.
    Like Fred Argy, you can argue we should be doing a lot more to improve equality of opportunity. But the place to do that (as has been pretty clear for some time) is a lot earlier in life than higher education fees.

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  5. DD – Even if Nguyen is making the point that double degrees cost a lot (which I don’t think he is, except in a highly misleading way) it still isn’t a very strong point, both because as the others say there is no need to do a double degree, and because the most you could end up owing under HECS is less than $60K, a very low cost for access to the upper end of the professions.

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  6. I heard something this morning on ABC radio about $190k dental courses. Of course, they are full fee. Apparently, such expensive courses will be a disaster because they will “force” graduates to work in the lucrative private sector instead of the needy public sector. And we stupid economists thought that people will choose to maximise their utility regardless of the sunk costs they incurred on their way…
    What I find interesting is that (I think) it is the dental association itelf who is raising these concerns. This would not seem typical behaviour for a union. My hunch is that a lot of dentists are baby boomers nearing retirement age and are looking for buyers for their practices. As with selling any asset, it’s better to have more buyers than less. Of course, this may be excessively cynical and totally off-beam.

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  7. Rajat – What they are not saying is that more than 80% of dentists are in private practice anyway, and I would suspect that many of those who are not are younger dentists gaining experience in the public sector.

    Given everything the ADA (and the AMA) says should be viewed with the utmost cynicism, my guess is that they are worried that more dentists will limit their opportunities to inflate fees.

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  8. Andrew, my recollection was that the ADA (if it was them) were suggesting that the Govt should increase funding for dental places. I can’t see how this would decrease the overall supply of dentists, even in private practice, unless it was coupled with the abolition of full-fee places. If this were to occur, presumably it would be the net effect on the supply of dentists that would matter, not the proportion of supply from HECS places vs full-fee places. My point is that I don’t think higher debt levels generally compel people to compromise other priorities to earn more money.

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  9. Rajat – The ADA has this media release on its website. Their arguments are not very strong. They say that the government should be finding ways of encouraging people to work in the public sector or rural areas. But how does subsidising people who admit they don’t need subsidies achieve that?

    Plus the old furphy about ability, as if trivial differences in test scores signal anything worthwhile about someone’s capacity to be a dentist. Is the ADA seriously saying our dental schools are graduating people who can’t do the job?

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